Chinese buyers from abroad are inflating California’s real estate prices, spending $22 billion in the past year alone to acquire U.S. assets that are viewed as hedges against China’s slackening growth. The result is pricing many California residents out of the real estate market, and creating a second housing bubble that threatens to end just as badly as the 2006-8 housing crash, from which the state’s economy is only beginning to recover.
The National Association of Realtors reports that cash purchases from “Greater China” (including Hong Kong and Taiwan) have nearly doubled over the past year, and accounted for nearly one-quarter of all foreign residential purchases in the U.S. In addition, Chinese buyers are buying more expensive homes than other foreign buyers, focusing on pricey real estate markets in California, Washington state, and New York.
The result, in cities like Los Angeles, is an illusory housing recovery that benefits those who already own homes but is pricing American first-time home buyers out of the market. Prices in coastal Santa Monica, for example, have risen from roughly $600 per square foot to over $1000 per square foot today. Further north, high rents in San Francisco have sparked a political backlash against the tech companies blamed for some of the price rises.
The real estate market in China suffers from “ghost cities,” giant developed communities built as part of a state-sponsored stimulus program aimed at keeping the country’s economy afloat during the global downturn. With a banking system shrouded in mystery and official corruption, Chinese investors are looking for a safe haven for their cash.
Unfortunately, because so many are making the same choices, they may have created an unsafe one.
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